September spending good news for retailers

EMBARGOED UNTIL: 0.00 Hours 20 October 2010: There is encouraging news for retailers with the Commonwealth Bank Business Sales Indicator(BSI)(i) rising again in September. On top of a small lift in August, this represents the first back-to-back gains in spending in ten months.

During September the BSI, which tracks the value of credit and debit card transactions processed through Commonwealth Bank point-of-sale terminals, rose by 0.2 per cent in trend terms, the second consecutive monthly gain following eight months of decline. Despite the improvement, in annual growth terms the BSI is still well down on a year ago, falling by 3.0 per cent in trend terms, the biggest annual decline since data was first collected six years ago.

According to Bernard Tanner, Chief Operating Officer Local Business Banking, Commonwealth Bank, the recent recovery in consumer spending is a welcome sign for retailers. “The latest figures show that strong market fundamentals are driving continued improvement in spending, and that’s good news for businesses. More people are back doing business again following the economic downturn and growth generally looks robust across the states and most industry sectors.

“However, while confidence is broadly increasing, it’s still early days. Despite the last two months of improvement, spending is still well down on where it was a year ago. Consumers are still cautious and continued growth is likely to rely on stability from the Reserve Bank”, said Mr Tanner.

Craig James, Chief Economist of the Bank’s broking subsidiary CommSec and author of the BSI, said the latest spending figures point to some positive signs but he warns there’s still a way to go.

“This is the best news that businesses have had in a long while, especially those dependent on consumer spending. It seems the purse springs are being loosened but we would caution that the runs aren't on the board as yet. However if the Reserve Bank stays on the interest rates sidelines people will be confident to spend again, especially with the Aussie dollar rising and the job market still strong," said Mr James.

Industry analysis – Improvement widespread across sectors

Of the 20 industries tracked in the BSI, the value of spending transactions fell in only four of the 20 industries in September, an improvement on August when five sectors went backwards.

Spending was strongest in business services, with sustained improvement seen in the hotels and motels sector, amusements and entertainment, and personal service providers.

STRONGEST INDUSTRIES

+ 1.5%

Business services

+ 1.2%

Hotels and motels

+ 1.0%

Amusement and entertainment

Personal service providers

The weakest sector by a fair margin in September was mail order and telephone order providers down 2.8 per cent, while retail stores were down by 0.7 per cent.

State/Territory analysis – No sign of a two-speed recovery

The BSI found that only two of the eight states and territories recorded a fall in sales in September. Spending was strongest in New South Wales (up 0.9 per cent), followed by Western Australia (up 0.8 per cent). The biggest decline in spending was experienced in Victoria (down 0.4 per cent) followed by the Australian Capital Territory (down 0.2 per cent).

“One of the most encouraging aspects of the latest report is that the pick-up is broad-based with most industry sectors and states posting gains. Importantly there are no signs of a two-speed recovery in spending with both NSW and Western Australia leading the way with trend growth in September”, said Mr James.

The Business Sales Indicator is calculated by tracking credit and debit card transactions processed through Commonwealth Bank merchant facilities throughout Australia (approximately 30 – 40 per cent of market).

The Business Sales Indicator has been devised to provide a monthly assessment of spending trends in the Australian economy and is available to the public on the Bank’s website and to the media on or around the 20th day of each month.

Currently, the main monthly indicator of spending in the economy is the Australian Bureau of Statistics’ (ABS) Retail Trade release. The main quarterly indicator of spending in the economy is the ABS Household Final Consumption Expenditure (HFCE). A quarterly measure of the Business Sales Indicator has closely tracked the ABS household consumption series over the past three years, highlighting the value of the Business Sales Indicator to track changes in spending across the economy. The Business Sales Indicator is available monthly; broader household consumption figures are only available from the ABS on a quarterly basis.

The Business Sales Indicator includes industry sectors based on international Merchant Category Code (MCC) categories.